Since its inception, cryptocurrencies have been heavily promoted as an alternative to both fiat currencies and the banking and governance systems that support them. Advocates have long touted crypto’s importance as means of conducting transactions away from the prying eyes of governments, offering its users the freedom to buy and sell as they saw fit. This has led to several instances in which crypto’s unique properties were abused to further criminal activity. Despite the potential for misuse, the crypto ecosystem can provide substantial benefits - and one Big Four firm has suggested that Bitcoin could help traditional fiat currency improve its own functionality.
Deloitte’s new analysis, “State-Sponsored Cryptocurrency,” recognizes that traditional fiat currency ecosystems can be slow, subject to inaccuracies, and expensive. Most interestingly, the report suggests that Bitcoin could be used as a base to create an improved system for electronic fiat or central bank digital currencies (CBDCs). Bitcoin’s strengths lie in the speed in which transactions are processed, the security of the blockchain, the ease by which cross-border payments can be transacted, and its adoption by and collaboration with other payment participants.
The report envisions a world where crypto exchanges serve as facilitators used to convert users’ cryptocurrency to fiat currency in transactions conducted across borders and currencies, charging an exchange fee in return. Banks would act as guardians of the distributed ledger and would compete against other miners to process transactions and reap the rewards. Its analysis highlights CBDCs’ vulnerability to inflation due to a lack of cap on money supply and the ability of centralized governments to define their value.
Governments are already taking note, with the island nation of Jamaica promoting its new CBDC, known as Jam-Dex, to its citizens, offering a free $16 payment to the first 100,000 citizens who use it. With up to 17% of the Jamaican population remaining unbanked, the government hopes to create a pathway for lower-income citizens to join its national banking system.
While CBDCs will not serve as a one-for-one replacement for Bitcoin and other cryptocurrencies, their mainstream adoption will open up a new option for users to choose the most appropriate means of payment, potentially creating a series of opportunities that would make the current system faster, more secure, and less costly.
